Act

Create resilient business

strategies, governance, and
management approaches
that ensure achievement of
sustainable business goals.

STRATEGY AND VALUE GOVERNANCE LEADERSHIP AND MANAGEMENT

CREATION
Resilient business strategies
address sustainability
challenges and take into full
account all the ways that the
world around us is changing.
Boards and senior executives
have the expertise, insights, and
information necessary to plan
for a sustainable future over the
long term, while also overseeing
sustainability performance today.
Structures, processes, and relationships
exist that make sustainability an
essential part of company decision-
making and operations, built upon
an ethical organizational culture
that sustains integrity and supports
sustainability innovation.

Strategy and Value Creation
The world is changing, with massive implications for business strategy and value creation.
Whether it is new energy systems, disruptive technologies, new business models,
changing demographics, hyper-transparency, or rising geopolitical uncertainty, the
operating context for companies is evolving.
STOP
Focusing on separate sustainability
strategies rather than business
strategy
Setting sustainability priorities that
are driven by risk management
Being constrained by investor
“short-termism”
INNOVATE
Create resilient business strategies
that view progress on sustainability
as a means of long-term value
creation and innovation
Conduct scenario planning and
strategic foresight
Engage investors in a long-term
vision of business
REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD 11
We believe the best response to this situation is not to continue integrating
sustainability into company strategy, but to develop a completely new way
of designing business strategy and creating value. The era of stand-alone
sustainability strategies, with subsequent integration of sustainability into
company strategy, needs to end; the creation of resilient business strategies
that take sustainability as their foundation needs to begin.
There are three major changes that need to happen for this new era to
emerge. First, we need to create resilient business strategies that take
sustainability as their foundation. Second, we need to emphasize long-term
value creation, and find ways to move beyond short-term performance
pressures that can prevent progress on sustainability. Third, we need new
tools and approaches that prioritize and measure the impact of sustainability
in a language that resonates with business.
As one executive told us, “Most big businesses have been working on
sustainability with reasonable success for the last 10 to 15 years, but we have
been picking the low-hanging fruit, and the next phase will be much more
difficult. It is about what you buy and what you sell; it goes into the heart of
your commercial operations and investment decisions.”
Resilient Business Strategies
Rather than integrate sustainability into company strategy, we believe
companies need to create resilient business strategies.
Resilient business strategies are based on an understanding that the
rapidly-shifting external context—our changing demographics, disruptive
technologies, economic dislocation, and natural resource scarcity—are not
“only” sustainability issues, but also business issues. Resilient business
strategies are based on the view that issues such as climate change,
women’s empowerment, and the changing nature of work are not “only”
for sustainability strategy, but are issues of business strategy and crucial
conversations for the boardroom.
12 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD
In many ways, sustainability issues and business issues
have converged. As one executive argued, “Sustainable
business is better business, and a sustainable future
is a better future. Tesla has built a better car, not just
a more sustainable car. I’ve stopped talking about
sustainability as a trade-off because I think it’s the
opposite. Sustainability makes us more innovative,
more flexible, and more resilient.”
A resilient business strategy will be different from
industry to industry and from company to company, but
there are several elements that will be common to all
businesses:
Products and services as sustainability solutions:
Generating revenue growth by developing products,
services, and solutions that meet sustainability needs,
such as reducing greenhouse gas (GHG) emissions,
achieving the UN Sustainable Development Goals
(SDGs), or reaching underserved customers. This
requires that we view the sustainability challenge not
as a risk to be mitigated, but as a driver of innovation
for new products, services, and technologies. As one
interviewee noted, “Our innovation teams are now
a part of our sustainability governance. Before we
make investments in intellectual property or pursue a
new joint venture, there are social and environmental
attributes we look for as part of the gating process.
We also team with innovators and entrepreneurs on
sustainability. We’re not thinking about ‘venture capital’
but the ‘venture customer,’ as we want to be the first
customer of these innovators.”
The era of stand-alone sustainability
strategies, with subsequent
integration of sustainability into
company strategy, needs to end;
the creation of resilient business
strategies that take sustainability as
their foundation needs to begin.
Futures thinking and strategic foresight:
Resilient business strategies require that
companies contend with rapid change,
uncertainty, and complexity. Futures thinking, also
known as strategic foresight, provides structured
ways to identify signals of change on the horizon,
explore multiple possible futures, and create fit-
for-purpose strategies that account for a turbulent
external context.
Capital assets and allocation: As the world
changes to address sustainability challenges—
such as modernized energy systems, upgraded
urban infrastructure, and circular economy
models—companies will need to rethink the
allocation of capital. As one interviewee explained,
“As we start to do two-degree scenario planning
and talk about stranded assets, we will need to
have more conversations at the board level to
understand what it means to reduce the carbon
footprint by a significant amount in the next 35
years and what this means for our capital assets.”
“Sustainable business is better business,
and a sustainable future is a better future.
Tesla has built a better car, not just a more
sustainable car. I’ve stopped talking about
sustainability as a trade-off because I think
it’s the opposite. Sustainability makes us
more innovative, more flexible, and more
resilient.”
Business continuity and resilience: Ensuring
that enterprise risk management (ERM) processes
fully consider sustainability challenges such as
climate resilience, natural resource availability, and
social volatility. As one executive told us, “Risk
awareness needs to become much greater now
that we are living in a much riskier world, and
facing issues such as the rise of authoritarianism,
cybercrime, and migration. We will see companies
having much greater oversight of risk, and
investors will be much more demanding of this
than in the past.”
 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD
Elements of Resilient
Business Strategies
PRODUCTS AND SERVICES
AS SUSTAINABLE SOLUTIONS
CAPITAL ASSETS AND BUSINESS CONTINUITY
ALLOCATION AND RESILIENCE
Talent acquisition and retention: Attracting
and retaining employees with alignment to the
company’s values, purpose, and sustainability
impacts, and with the diversity needed to address
customer expectations. One banking executive
told us, “Millennials have different expectations
of the workplace. They expect to work for a
company whose values are aligned with theirs, and
sustainability has to play a role in that.”
Long-Term Value Creation
We believe that resilient business strategies will
enable companies to navigate our era of profound
change and create sustained long-term value for
investors.
We say this with full awareness of the intense
pressures companies can receive from activist
investors to generate short-term financial returns,
often at the expense of long-term value creation.
In our view, this reflects a misunderstanding and
a misalignment of shareholders’ true interests,
which are better served if companies can
successfully prioritize long-term thinking.
Indeed, the interests of shareholders are as
complex and varied as those of any other kind of
stakeholder, and many shareholders have a clear
and growing interest in sustainability and long-
13
FUTURES THINKING AND
STRATEGIC FORESIGHT
TALENT ACQUISITION
AND RETENTION
term value creation. To combat short-termism in
corporate strategy, companies can actively seek
to attract and retain shareholders with longer-
term and more sustainable agendas. As one
interviewee said to us, “There are different kinds of
shareholders, and the long-term shareholders are
the ones I like to focus on. They want a business
that can continue. They also want a business that
considers a changing global landscape, including
environmental and social factors.”
We believe that resilient business strategies are an
essential response to the short-term vs. long-term
debate. They provide a new way for business
leaders to demonstrate that sustainability delivers
value for investors in both the short and long term.
“There are different kinds of
shareholders, and the long-term
shareholders are the ones I like to focus
on. They want a business that can
continue. They also want a business
that considers a changing global
landscape, including environmental
and social factors.”
 14 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD

Specifically, there are three steps companies can take to increase appreciation for resilient business strategies by investors:

STEP 1 STEP 2 STEP 3

Create the resilient Engage investors on the vision for Know the audience
business narrative resilient business Prioritize communications with the
Establish a compelling long- Proactively communicate the long-term asset managers that hold (or might
term value creation story value creation story to investors as a hold) their shares, and who are longer-
that asserts the central role core element of mainstream investor term investors, rather than shorter-term
that sustainability plays in communications, as well as via webinars, activists. As the CEOs at Blackrock,
1

business success. This will roadshows, or other communications Vanguard, and State Street have all
2 3

flow naturally from resilient targeted at specific analysts. These
business strategies. proactive communications should be
prioritized over reactive approaches,
such as responding to questionnaires or
validating ratings reports, which have come
to occupy a disproportionately large share
of company attention and resources.
recently made clear, many mainstream
investors are seeking increased
engagement with companies on issues
of good governance and long-term value
creation. These long-term investors,
including pension funds, insurance
funds, mutual funds, and sovereign
wealth funds, constitute a majority of
shareholders—and they invest on behalf
of long-term savers and tax payers.

In short, companies can and should be more assertive in communicating

their long-term value creation stories, rather than waiting for investors to state
their interest. This will help close the current trust gap. As one interviewee
noted, “Investor questionnaires and shareholder resolutions continue to grow
because of a huge dysfunction in the marketplace. If companies were more
effective at disclosure and proactive communication with investors, these
“Investor questionnaires and shareholder
things would go away.”
resolutions continue to grow because of
a huge dysfunction in the marketplace. If
companies were more effective at disclosure
and proactive communication with
investors these things would go away.”
We believe that resilient business
strategies will enable companies to
navigate our era of profound change
and create sustained long-term value
for investors.

1 https://www.blackrock.com/corporate/en-us/investor-relations/larry-fink-ceo-letter
2 https://about.vanguard.com/investment-stewardship/governance-letter-to-companies.pdf
3 https://www.ssga.com/investment-topics/environmental-social-governance/2017/long-term-value-begins-at-the-board-eu.pdf
 “Scenario planning is not a prediction of the
Tools and Solutions future, but a way to understand how our
There are four important tools and solutions to business would look in a new environment
and to test the resilience of the business in
advance resilient business strategies.
the future. Sustainability considerations such
as planetary boundaries, water scarcity, and
Sustainability as a business climate change must be central to the strategic

1 development opportunity: Companies

can proactively seek out the business
planning process.”

development and revenue growth

opportunities that arise from sustainability
strategy. For example, many companies have
established teams whose sole function is to identify
new sustainability opportunities, such as new
products and services, or better-informed market entry Scenario planning and strategic foresight:
strategies. Said one interviewee, “We need to focus 2 Sustainability is inherently a forward-looking field with
long time horizons, volatility, and uncertainty. For
primarily on how sustainability supports growth—
how does solving major sustainability challenges this reason, there is an opportunity to use scenario
create new revenue opportunities for the company? planning and futures thinking to help companies build
We need sustainability teams focused on business strategies that are fit for purpose in a fast-changing world. As one
development, and we need to recognize that company interviewee explained, “Scenario planning is not a prediction of
products, services, and technologies can sometimes the future, but a way to understand how our business would look
be more important for sustainability than corporate in a new environment and to test the resilience of the business
processes and procedures.” in the future. Sustainability considerations such as planetary
boundaries, water scarcity, and climate change must be central to
the strategic planning process.” Rather than integrating sustainability
into strategy, scenario planning and strategic foresight present
a significant opportunity to create strategy based on a thorough
Materiality and enterprise risk
understanding of sustainability context. It is for these reasons that
3 assessment (ERM): Resilient business
strategies require a different approach
BSR launched a Sustainable Futures Lab in 2017 to enable strategic
foresight-driven engagement with our member companies.
to ERM that is much more effective at
incorporating sustainability risks of material
significance to the company. Referring to the need
for holistic approaches, one interviewee observed:
“Companies that have a well-developed ERM process
Capitals approach: An emerging capitals approach
are far better at managing sustainability issues.” We
also believe that there is an opportunity for ERM
4 encourages companies to examine the resources that
they depend on or impact using a comprehensive
processes to utilize the outputs of sustainability-
framework. This means considering manufactured,
oriented materiality assessments, and for those
financial, social, human, and natural capital. Examples of initiatives
two processes to be much more closely aligned.
promoting the capitals approach include the International Integrated
This requires that sustainability-oriented materiality
Reporting Council, the Natural Capital Coalition (the “Natural
assessments are much more rigorous at defining
Capital Protocol”) and the WBCSD (“Social Capital Protocol”).
what sustainability issues may be material to business
These approaches offer a clear framework for understanding
success. As one interviewee explained, “sustainability
overall corporate value creation in one integrated model. As one
needs to be part of the ERM process, and we need
interviewee stated, “We have been tinkering around the edges
to clearly distinguish between what is a business risk
without really grappling with the bigger challenges of what the
and what is not. We need to act decisively on material
business model is and what it means for society. The capitals
sustainability risks, but people will get tired if we claim
force you to think about the fundamental business. It moves from
all sustainability issues are also business risks.”
just measuring what we do to actually understanding the strategic
value.”
 16 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD

Governance
The creation of resilient business strategies that embrace sustainability requires that
boards play a much more significant role in the sustainable business agenda.

We believe there are specific steps that companies can take to achieve
this outcome. The increased attention generated by global sustainability
challenges in recent years—everything from the UN Sustainable Development
Goals to the Paris Agreement on Climate Change and the UN Guiding
Principles on Business and Human Rights—has significantly increased the
pool of leaders in the private sector capable of and willing to rise to this
challenge.

Research shows that boards and executive leadership are paying more
attention to sustainability issues than ever before. However, the BSR/ 4

GlobeScan 2017 annual survey found that, while 90 percent of respondents

believe the CEO and C-Suite leadership has significant influence over the
sustainability agenda, only 40 percent of sustainability teams were prioritizing
engagement with the CEO’s office. An MIT Sloan and Boston Consulting
Group (BCG) survey was similarly stark: While 86 percent of respondents
believe that boards should play a strong role in their company’s sustainability
efforts, only 30 percent believe that their sustainability efforts had strong
STOP
board-level oversight.
Treating sustainability as separate
from business strategy, rather than
as a core issue of strategic foresight
and planning

Perceiving that sustainability falls

outside core board duties

INNOVATE

Recruit board members with

expertise relevant to sustainability

Invest in external advisory councils

Align incentives with sustainability

While these findings reflect a concerning lack of urgency and engagement
performance
with sustainability issues on the part of the board, we believe that solutions
are available to turn the situation around.

4 For example, the Ceres Gaining the Ground report found that 32 percent of company boards had sustainability oversight in 2014, compared to 28 percent in 2012.
 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD
Barriers to Effective Board
Governance of Sustainability
Before moving to the solutions, it is useful first to diagnose the barriers to effective board governance of sustainability.
We believe there are five.
Unclear business case: Without a clear business case for
sustainability, it can be difficult to engage boards. One interviewee
explained that while board members and senior executives are genuinely
concerned about societal issues, they “are unable to clearly articulate
the link to the business and drive a management response.” Others
believe sustainability is “societal noise because it is not reflected into
price signals.”
Conformism: Addressing sustainability challenges often requires
addressing difficult issues head on, but some interviewees expressed
the view that boards and executive leadership do not create the space
for this to happen effectively. One interviewee said, “Staff incentives
when engaging board members is to be very risk-averse and to ‘toe
the party line,’ as the information they provide is vetted by executive
management before being shared with the board. This leads to self-
censorship and information filtering to align with what’s deemed
acceptable.” This conformism exists at the board level too. As one
interviewee noted, “rather than groupthink, board members need
an intellectual curiosity and emotional strength that is disturbing and
nonconformist.”
Limited board bandwidth: New corporate governance regulations
have expanded board roles, responsibilities, and duties over recent
years, and very little bandwidth remains to tackle issues that seem
less immediate. One interviewee at a company undergoing significant
structural changes emphasized “the challenge of surfacing sustainability
issues when the very existence of the company is at stake.”
While 90 percent of respondents
believe the CEO and C-Suite
leadership has significant influence
over the sustainability agenda, only
40 percent of sustainability teams
were prioritizing engagement with
the CEO’s office.
17
Gaps in board competency: Without adequate
expertise, it is difficult for boards to engage
executive leadership on the viability of long-term
strategy and vision. In its Gaining Ground Report,
Ceres analyzed the makeup of board committees
with sustainability oversight responsibilities and
found that of the 774 directors who sit on such
committees, only 19 percent had discernible or
specific sustainability expertise in environmental,
social, or governance issues. One interviewee
from a healthcare company stated that his board’s
background and experience is “too narrowly
defined” and that “despite strong business,
scientific, and medical representation, the board
lacks capabilities to manage societal corporate
responsibility and sustainability issues.” The
interviewee felt that the board would benefit from
representatives with nontraditional backgrounds
and expertise.
Lack of relevant information:
Many of the people we interviewed for this report
are responsible for regular board briefings on
sustainability issues, and a common theme many
of them noted was a lack of clarity about the
type and volume of sustainability information that
should reach the board: Too much, and credibility
is lost by sharing unimportant information; too
little, and the board is unable to conduct effective
analysis. One interviewee expressed frustration
that sustainability issues were treated as a “palate
cleanser” by the board—an artificial sweetener of
“good works” that made the board feel positive
amid poor overall business performance, rather
than a substantive review of sustainability strategy.
18 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD

Solutions and Innovations

Six innovations can be made to enhance the ability of boards to establish the resilient
business strategies needed to create long-term value.

Emphasize long-term value creation over

1 sustainability oversight and performance scrutiny. “Today, the role of the board’s corporate
Interviews for this report suggested that although boards responsibility committee is to hold the
are increasingly effective at providing oversight on current company to account rather than provide
practices, they fall short of providing insight on how long-term insight into long-term trends. This is a missed
trends will affect the company’s ability to achieve its strategy. As one opportunity and the Board should increase
company interviewee stated, “Today, the role of the board’s corporate focus on ensuring the company remains fit for
responsibility committee is to hold the company to account, rather than purpose in the longer term.”
provide insight into long-term trends. This is a missed opportunity, and
the Board should increase focus on ensuring the company remains fit
for purpose in the longer term.” An interviewee from an energy company
made similar comments: “The company’s vision is a sustainable energy
future, and the Board needs to understand what this means. However,
our Board doesn’t have the right expertise. They ask questions about
execution, but don’t have insight into strategic priorities, such as two-
degree scenario planning.”

5%
Strengthen board stewardship of sustainability: There is no “one-size fits all”
to governance systems formalizing the sustainability stewardship responsibilities
2 of the board. Sustainability issues can be integrated in the mandates of the board
of companies placed at large, of an existing board committee, or of a committee dedicated specifically
sustainability oversight to sustainability. A 2014 study of the S&P 500 found that 45 percent of companies
with the board at large did not demonstrate board oversight of sustainability issues, 33 percent integrated sustainability
into a committee, 18 percent had a standalone sustainability committee, and 5 percent placed
oversight with the board at large. 5

Align of incentives to sustainability performance: Integrating

3 sustainability performance in executive compensation can increase
81%
the engagement in sustainability issues. Glass Lewis found that 39
percent of companies in the United States, Canada, Australia, the UK, of compensation schemes linking
Norway, the Netherlands, Brazil, Spain, France, Switzerland, and Germany executive pay to sustainability
link executive compensation to sustainability factors, and that 81 percent performance did so did so through
of compensation schemes linking executive remuneration to sustainability short-term incentive packages
performance did so through short-term incentive packages.

5 https://irrcinstitute.org/wp-content/uploads/2015/09/final_2014_si2_irrci_report_on_board_oversight_of_sustainability_issues_public1.pdf.
 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD 19

Recruit board members with expertise to understand the strategic implications

4 of sustainability issues: Boards need sufficient expertise on material sustainability

issues to effectively support, inform, and question executive leadership on its business
strategy. This means recruiting board members with expertise relevant to sustainability.
While some have recommended the recruitment of “stakeholder directors” to represent
stakeholder groups at the board level, we tend to favor recruiting board members with specific
skills and expertise related to material issues. While inviting representatives of stakeholder groups
on boards may seem like a panacea to ensure that boards consider the interests of company
stakeholders, it will be difficult to ensure one or two individuals can represent the breadth and
depth of stakeholder views, and it is easy to see how a “pro-stakeholder” representative could be a
marginalized “party of one” at the board table. By contrast, directors with specific areas of expertise
Training on material sustainability
on relevant sustainability issues could provide significant added value to board discussions.
issues: In parallel to building a board
with relevant sustainability qualifica-
tions,training
Provide companies on can provide
material training
sustainability issues: In parallel to
to current board directors. The focus
5 building a board with relevant sustainability
canofprovide
the training willto
training vary by industry.
current
qualifications, companies
board directors. The focus of the
training will vary by industry. For com-
For example, an oil and gas example, an oil and gas company
pany
will want will wanttraining
to provide to provide trainingmitigation
on climate on and adaptation, while a “Rather than groupthink, board
climate mitigation and adaptation,
healthcare company will focus on access to care. Training can also be augmented, members need an intellectual
as is the case in while
manyacompanies,
healthcare company will and briefings from external
with site visits
curiosity and emotional
experts. As one focus on access
interviewee to care. Training
emphasized, can that the capacity of board
it is essential
members is enhanced also beby augmented,
being exposed as istothedifferent
case perspectives and voices: strength that is disturbing and
in many companies, with site visits
“Board members typically lack access to independent experts in relation to core nonconformist.”
business issues and and briefings from external
their sustainability experts.They are often exposed to a
dimension.
very small number Asofone interviewee
senior managers, emphasized,
and a more it isin-depth onboarding of people
essential that the capacity
joining boards and board committees is needed.” of board
members is enhanced by being
exposed to different perspectives and
voices: “Board members typically
lack access to independent experts in
Create external
to coreadvisory
business councils:
issues andExternal advisory councils can be an extremely valuable tool
6 relation
to bring
their sustainability dimension.set
in views from a diverse of stakeholders, without being constrained by the formalities of
They
company
are oftenboard structure.
exposed Successful
to a very small advisory councils display certain important characteristics, such
as being well resourced, engaging
number of senior managers, and witha the right senior company decision-makers, having the appetite
to listen to divergent views and perspectives,
more in-depth onboarding of people and including technical experts—on climate change, technology, or
geographies, forjoining
example—rather
boards and board committees generalists. One interviewee described how their external
than just sustainability
sustainability advisory council “drives change by keeping the company fresh and letting it know when it is screwing
is needed.”
up.” Another interviewee described the thoughtful use of their external sustainability advisory council to engage
company leadership on the strategic business implications of sustainability challenges.
20 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD

Leadership and Management

The creation and implementation of resilient business strategies will require
new types of executive leadership that support organizational leadership on
sustainability issues.

We believe this executive leadership transformation needs to take place in

three areas—diversity, leadership style, and innovation.

The creation and implementation of resilient business strategies will also

require an overhaul of the sustainability function. We believe that the
sustainability function should reimagine its future in four main ways: as
the creator of value for companies, as futurists, as change agents, and as
coalition-builders. This requires a more deliberate, structured, and thoughtful
approach to working with other functions. But if it succeeds in these four
STOP areas, then sustainability functions will thrive as an engine of innovation at a
time when innovation is sorely needed.
Positioning the sustainability
department as the team that is The importance of these transformations is indicated by the 2017 BSR/
designed mainly to respond to GlobeScan annual state of sustainable business survey, which revealed
external pressure
the misalignment that exists between the external stakeholders who most
Using impenetrable terminology influence companies’ sustainability agenda and the internal departments that
are most frequently engaged on sustainability issues.
Trying to address all issues, all the
time

INNOVATE

Frame sustainability as an
opportunity for growth and value
creation

Reimagine the sustainability function

as the creator of value, as futurists,
as change agents, and as builders of
coalitions

Set a sustainability tone from the top

 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD
Though customers, investors, employees, and the
government were seen as important stakeholders
by over half of our survey respondents, there was
much less appreciation of the need to engage
directly with the internal functions that work with
these stakeholders on a daily basis. While more
than half of respondents agreed with the need
to engage with procurement departments, less
than 30 percent saw a need to work closely with
functions such as strategy, product development,
risk, or investor relations, and less than 10
percent saw any need to prioritize legal or finance
teams. New types of executive leadership and
a reimagined sustainability function will address
these challenges and increase company capability
to design and implement resilient business
strategies.
The Leadership
Challenge
Providing meaningful leadership on sustainability
issues and creating resilient business strategies
requires that companies consider culture, which
is the product of norms, values, structures, and
incentives. Leaders in an organization have an
outsize role to play in setting culture because
they are responsible for socializing and integrating
employees into the system. They communicate
rules, norms, processes, and tasks. Employees
will closely watch and absorb how leaders
behave and the explicit and implicit signals they
We believe that sustainability
leaders should reimagine their job
functions in four key ways: as the
creator of value for companies, as
futurists, as change agents, and as
coalition builders.
6 www.edelman.com/news/2017-edelman-trust-barometer-reveals-global-implosion/
7 http://thinkunthinkable.org/downloads/Thinking-The-Unthinkable-Report.pdf
8 For example, Katherine W. Phillipps, “How Diversity Makes Us Smarter,” Scientific American, October 1 2014, www.scientificamerican.com/article/how-diversity-makes-us-smarter/, and David Rock and
Heidi Grant, “Why Diverse Teams Are Smarter,” Harvard Business Review, November 1, 2016, https://hbr.org/2016/11/why-diverse-teams-are-smarter
21
give, and they will modify their own activities
and communications accordingly. This is the real
meaning of “tone at the top.”
There is plenty of evidence that corporate leaders
are struggling to adapt to today’s disruptive
environment and have lost the trust of the public.
The 2017 Edelman Trust Barometer found that
the credibility of CEOs fell by 12 points to an
all-time low of 37 percent, albeit remaining higher
than trust in the government or the media. A 6
2016 study by Nik Gowing and Chris Langdon
found that executives are struggling to adapt to
the pace of change in geopolitics, technology,
and society, increasingly finding that “business
as usual” approaches don’t cut it, but lacking
the willingness or ability to embrace the less
risk-averse approach needed to meet these
challenges. 7
We believe that companies need to reconsider the
behavior and traits that are sought and rewarded
in their senior executives and their approaches to
organizational leadership on sustainability issues.
We believe this leadership transformation needs
to take place in three areas—diversity, leadership
style, and innovation.
Diversity: There is a wealth of research
suggesting that more diverse leadership teams
are smarter and make better decisions. A 2015 8
study by McKinsey found that the most diverse
leadership teams worked in companies that had
higher financial returns, were more innovative,
and were less prone to groupthink. However,
many private sector organizations still reward the
“traditional” traits of competitiveness, risk-taking,
and a controlling leadership style, and these
biases are difficult to shift.
The ongoing dramatic shifts in the operating
context require more diverse and ethical
leadership teams that prioritize pro-social
behavior over relentless self-interest and are open
to collaborating with diverse external stakeholders
to drive innovation. As one interviewee noted,
“The need for collaboration is increasing over
time. As you start reaching into a wider set of
communities with localized contexts you need
to get away from the uniform approaches that
multinationals have developed, and partners
22 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD
help close that gap.” The need for more diversity
at the top of organizations is not just about the
scale of the societal challenges we face, it is also
about the increasingly visible connections and
dependencies across value chains and countries.
The successful companies of the future will
reward collaboration over competition as the best
route to operational and financial success.
Leadership style: Traditional concepts of
leadership involve the accumulation and exercise
of power by those at the top of the pyramid. An
alternative concept—“servant leadership”—is
based on the leader serving the interest of the
organization and the people within it, rather
than the other way around. The servant leader
is defined by humility and perseverance and
focuses on behaving ethically, creating value for
the community, and building problem-solving skills
and task knowledge. It creates psychological
safety in teams, emphasizes talent development,
and leads to a much greater dispersion of power
within an organization.
We believe that more resilient business strategies
will arise from servant leadership styles. While
humans tend to seek more dominant leadership
figures in times of uncertainty, organizations that
pursue more distributed leadership models are
much better positioned to respond to a world
where political power is more multipolar, humans
are more mobile and have rising expectations,
and debate is less top down and more diffuse.
The emergence of a new generation of leaders
who are focused on broader concepts of value is
essential for addressing sustainability challenges.
DIVERSITY
Leadership Transformation
“The need for collaboration is increasing
over time. As you start reaching into a
wider set of communities with localized
contexts you need to get away from the
uniform approaches that multinationals
have developed, and partners help close
that gap.”
Innovation and differentiation: Compelling
examples of organizational leadership in
sustainability all have two things in common—the
ability to differentiate the company’s efforts from
that of its peer group and a conscious decision
to do something that competitors are not. This is
true of all transformational strategic efforts, but
it has particularly important consequences for
sustainability because it will help investors and
the public push other companies to meet the
same standards and “raise the floor” in terms of
what is expected of business. Today, far too many
sustainability management efforts begin with
benchmarking what other companies are doing,
which drives convergence to the median and
limits potential for change.
SERVANT
LEADERSHIP STYLE
INNOVATION
AND
DIFFERENTIATION
24 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD
Sustainability Function
as a Value Creator
When sustainability teams were first created by
companies, they often had a reactive function—
responding to social controversies and concerns
raised by external stakeholders—and tended to
focus on tangible risk mitigation, such as reduc-
ing environmental impacts or addressing labor
violations in supply chains. These remain import-
ant objectives, but they alone do not constitute a
viable future for the sustainability function.
We believe the long-term impact and viability of
sustainability teams resides instead in identify-
ing opportunities to create business value. One
interviewee summarized this view well, saying:
“We need to focus primarily on how sustainability
supports growth—how does solving major sus-
tainability challenges create new revenue oppor-
tunities for the company? This means integrating
the global Sustainable Development Goals into
business planning, and ensuring that sustainability
teams are focused on business development.”
Many subjects that have traditionally been consid-
ered sustainability issues can be used to gener-
ate revenue, reach nontraditional markets, and
innovate. One obvious example is climate change,
where financial institutions are creating offer-
ings—such as green bonds and new insurance
products—premised on the notion that climate
change is having immediate impacts. Pharmaceu-
“We need to focus primarily on how
sustainability supports growth—how
does solving major sustainability
challenges create new revenue
opportunities for the company?
This means integrating the global
Sustainable Development Goals into
business planning, and ensuring that
sustainability teams are focused on
business development.”
tical, retail, and food companies have embraced
consumer interest in health and wellness as a
growing market. Consumer products for people in
the fast-growing cities of the Global South often
require new business models to meet the reality
of people’s lives in those locations. The focus on
the circular economy is giving rise to innovative
business models that deliver value while driving
down the need for natural resources.
The sustainability function will deliver greater
value by playing a catalytic role in generating such
opportunities. The good news is that the ability to
deliver on this vision relies upon many of the core
skills developed by sustainability leaders over the
past two decades: engagement with people and
institutions not traditionally addressed by large
companies; an orientation toward change; and
attention to underserved populations, all of which
can be strong drivers of innovation. The change in
mindset requires sustainability leaders to explore
the creation of market opportunities, not only the
adverse social impact of market failures.
Sustainability Leaders
as Futurists
Focusing on value creation also means that
sustainability teams need to re-orient their
perspective more toward future opportunities
and aspirations. However, while sustainability
functions can identify long-term sustainability
factors that drive risk and generate value, they
will also need to engage with the uncertainty,
complexity, and volatility of how consumers, policy
makers, and other key stakeholders respond to
these long-term sustainability factors. To achieve
this, sustainability professionals can facilitate
cross-functional approaches that bring together
insights from strategy, research and development,
government affairs, and other areas to achieve
a shared understanding of how addressing
sustainability issues can create value over the long
term.
As stewards of the long-term perspective within
companies, sustainability professionals are
wellpositioned to drive more future-oriented
strategic foresight into the business and cultivate
new perspectives.
 Value Creators
Identify opportunities to
create business value
and play a catalytic
role in generating such
opportunities.

Change Agents
Enhance and leverage
organizational change and
influence skills.

New Job Descriptions for

Sustainability Professionals

Coalition-Builders
Seek traction in the areas where
the company has the most
advanced and innovative thinking
and adopt a more structured way
of thinking about sustainability’s
place in the organization.
Futurists
Identify long-term sustainability
factors that drive risk and
generate value; engage with
the uncertainty, complexity, and
volatility of how consumers,
policy makers, and other key
stakeholders respond to these
long-term sustainability factors.
26 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD
“The scope of the sustainability team
is evolving. Sustainability people are
translating what is happening in
society to the company and vice versa.
I don’t see anyone else in the company
playing this role. For this, brand new
competencies are needed.”
Sustainability
Leaders as
Change Agents
The increased investment in sustainability at
companies over the past 25 years has resulted
in sustainability becoming more professionalized
and defined. However, the competencies that
companies seek for their sustainability teams vary
by industry—for example, environmental science
might be desirable for a chemical manufacturer,
while a consumer-focused company might
seek to hire marketing professionals—and little
thought has been given to the skills needed by
sustainability professionals to create value for their
employers.
We believe that change management and
influence skills are a core sustainability
competency across all industries. One interviewee
noted, “Organizational change and change
management is under-regarded in the field of
sustainability. Most of the sustainability team’s
job is more about organizational change than
subject matter expertise. To engage the executive
committee, we tailor language and shape
messages for each. I also use external voices
and pressures to move lines.” A practitioner at
a different company said, “The scope of the
sustainability team is evolving. Sustainability
people are translating what is happening in
society to the company and vice versa. I don’t see
anyone else in the company playing this role. For
this, brand new competencies are needed.”
We also believe that different types of change
management techniques should be deployed
at senior- and middle-management levels.
Senior executives are often very receptive to the
inspiration, purpose, and reputational value that
sustainability can provide, and they have a longer-
term, more strategic, and existential perspective
on the organization. However, without meaningful
thought to how sustainability commitments get
translated into what line managers reward and
prioritize, it is difficult to embed this commitment
into the organization. As one experienced
practitioner explained, “Some of the sustainability
arguments that would work for the CEO are less
likely to carry water with a mid-level executive.
Part of this is a consequence of risk aversion—but
these individuals also have more near-term goals
and are on the hook to deliver. Many sustainability
programs fail because operating results are the
hammer point where the trade-off between now
and the future is most acute.”
Given the degree of consensus that organizational
change and influence skills are a core element of
success for the sustainability function, the next
step toward defining the field would be to expand
and extend this capability among sustainability
professionals.
 REDEFINING SUSTAINABLE BUSINESS: MANAGEMENT FOR A RAPIDLY CHANGING WORLD 27

Sustainability
Function as
Coalition-Builders
There are many opportunities for sustainability
teams to increase collaboration with key internal
departments on a sustainability agenda, and
it makes sense to seek traction in the areas
“Organizational change
where the company has the most advanced and change management is
and innovative thinking. These will vary from under-regarded in the field
company to company. As one interviewee noted, of sustainability. Most of the
“All functions have a role to play, from finance
sustainability team’s job is more
to marketing, but making sustainability succeed
in the organization means understanding that about organizational change
organization’s specific dynamics and character.” than subject matter expertise.”

For companies in engineering, natural resources,

and manufacturing, long experience and rigor
in risk management, oversight, and compliance
mean that the organization may be better able
to incorporate the long-term risks presented
by sustainability, but struggle to implement
opportunities. By contrast, for companies in
consumer sectors, product development and
marketing may provide the strongest lever
for progress. This contrast suggests that
sustainability practitioners need to move on from
a “whatever works” mindset and adopt a more
structured way of thinking about their place in the
organization.
We believe that starting with an organizational
materiality principle make sense. This involves
using the findings from a materiality assessment
to design an internal engagement program
focused on departments with the most potential
influence and expertise for the sustainability
agenda. In this way, teams can target their efforts
where they are best placed to gain traction, and
build visibility and support in the process.

Sustainability practitioners need

to move on from a “whatever
works” mindset and adopt a more
structured way of thinking about
their place in the organization.